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Adjustable Rate Mortgages: The Right Tool or Not? Only You Can Tell

By Gabriel Traverso
Mortgage Credit Problems Columnist


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Over the past few years buyers with bad credit have been sold a proportionally higher number of adjustable rate mortgages and many who bought them made the wrong move. This doesn't mean the adjustable rate mortgage isn't right for you.

Bad Credit or Not, Make a Smart Decision

Earlier this summer MSNBC ran a piece on the rising foreclosure rate, which hit a record high in the first quarter of this year. Not surprisingly, the biggest increases in both foreclosures and mortgage delinquencies came from subprime borrowers--those with bad credit. Some have accused many lenders of targeting bad credit borrowers with adjustable rate mortgages, hybrid ARMs, and interest-only home loans because they are more profitable to mortgage lenders. However, this is only partially responsible for the foreclosure increase in the bad credit segment. Equally at fault are the borrowers who purchased homes they couldn't afford and chose mortgages that didn't fit their budgets.

Don't Make the Same Mistake: Choose the Mortgage That's Right for You

Many mortgage lenders are offering a variety of home loans today with flexible payment options and these products can be very enticing. Don't make the same mistake so many others have--make sure you understand how your mortgage works before you sign! Your loan officer will give you a truth-in-lending document for your home loan. Have this carefully explained to you so that you really understand the full cost of the loan, what happens when the introductory rate goes up, and whether it will fit into your budget.

These new option home loans are perfect for some borrowers. If you have fluctuating income or can count on a large lump payment in the near future--and I mean count on it--then a hybrid loan could be the right tool to get you into the home you want. Just make sure you do your homework before you get your mortgage.

Source
MSNBC

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